Audit Report 3-05: Audit of the Eligibility of 15 HUBZone companies and a Review of the HUBZone Empowerment Contracting Program’s Internal Controls

Date Issued:

Wednesday, January 22, 2003

Report Number:

3-05

On January 22, 2003, the OIG issued Audit Report 3-05, Audit of the Eligibility of 15 HUBZone companies and a Review of the HUBZone Empowerment Contracting Program’s Internal Controls. This audit was initiated after the SBA’s Office of HUBZone Empowerment received a complaint about 15 certified HUBZone companies operating in a small census tract. The complainant expressed concern that some of the companies were not qualified to participate in the program. The objectives of the audit were to determine whether: (1) the 15 subject companies met the four criteria for participation in the HUBZone program, and (2) whether the program office’s internal controls over the selection and monitoring of participating companies were adequate to ensure that only eligible firms were certified and remained certified.

The OIG found that over two-thirds of the 15 subject companies were either not in compliance with HUBZone eligibility requirements or had presumably gone out of business. The OIG also found that that Office of HUBZone Empowerment’s internal controls were inadequate to ensure that only eligible firms were certified and remained certified. For example, eleven of the 15 companies either did not comply with one of the eligibility requirements, specifically: (1) seven companies did not meet the 35% HUBZone residency requirement, (2) three companies did not respond to OIG inquiries, and had inactive mailing addresses and phone numbers. Further, the SBA’s current controls are inadequate to provide reasonable assurance that the 7,555 firms on SBA’s List of Qualified Small Business concerns meet all eligibility requirements. The OIG also found that the program office did not have the administrative resources necessary to decertify firms and remove them from SBA’s list on a timely basis after such firms had notified the SBA that they no longer met program eligibility requirements.